The practice of non-interference of the United States on the other hand has been not only a matter of policy, but the carrying out of a fundamental principle that the diplomatic interposition of the United States cannot be invoked (within the recognized limitations) in behalf of contractual claims.1 If certain revenue or security has been set aside for the repayment of a loan, it seems probable that the United States would, following the practice of other nations, interpose diplomatically to prevent any diversion of the security or the pledged revenue.2 Attorney-General Cushing in the course of an elaborate opinion on the Texas bonds question declared that

"A public creditor, like a private creditor, has a general right to receive payment out of the property, income, or means of his debtor. A special pledge of this or that source of revenue, of this or that direct tax, when made by a government, renders such source of revenue, like a mortgage or deed of trust given by a private individual to his creditor, a specific lien, a fixed incumbrance, which the government ought not, in justice to the creditor, to abolish, lessen, or alienate until the debt has been satisfied." 3

In the case of certain bonds issued by Haiti to American citizens for work and materials furnished, Secretary of State Sherman protested against a proposed law of Haiti having in view the conversion of the bonds at a rate greatly depreciatory of their value. There would indeed seem to be some difference between bonds purchased in the open market as an investment and bonds received in payment for services and goods, in the hands of the original parties.

Where the loan has been liquidated and a new agreement for payment made, the origin of the debt seems to have constituted no deterrent against its enforcement. So in Mexico, in 1861, Lord John Russell withheld recognition of the Mexican government until Mexico had agreed to carry out an arrangement made with British bondholders.5

1 Citations noted in Moore and Wharton, supra, p. 288.

2 Cases cited, supra. See also opinion of Little, commissioner, in Aspinwall (U. S.) v. Venezuela, Dec. 5, 1885, Moore's Arb. 3641-3642.

Opinion of Sept. 26, 1853, 6 Opin. Atty. Gen. 130, 143.

4 Mr. Sherman, Sec'y of State, to Mr. Powell, Oct. 26, 1897, Moore's Dig. VI, 729. In Canevaro (Italy) v. Peru, April 25, 1910, 6 A. J. I. L. 746, the internal debt of Peru was converted at a reduced rate.

Lord J. Russell to Sir C. Wyke, Mar. 30, 1861, 52 St. Pap. 237, 239. Some of

Both the United States and Great Britain have authorized their representatives abroad to receive payment for their citizen bondholders, as a matter of convenience both to the debtor government and to the citizen, and where the bonds of one foreign government have been wholly or largely held by the citizens of another, the United States has, on one occasion at least, sanctioned the endeavor of the government of the creditors to effect by diplomatic negotiation an adjustment of their claim.2

Dr. Drago, in advancing his doctrine as a corollary to the Monroe Doctrine, had some reason to expect the approval of the United States, not only because of its interest in the maintenance of the Monroe Doctrine, but because of its traditional attitude in the matter of contract claims. Dr. Drago quoted from Monroe's message that the United States

"could not view any interposition for the purpose of oppressing [the countries of the American continent], or controlling in any other manner their destiny, by any European power, in any other light than as the manifestation of an unfriendly spirit toward the United States." 3

In Secretary of State Hay's reply to the Drago note (one of "cordial evasion," as Dr. Drago himself has expressed it), Mr. Hay quoted from President Roosevelt's message of 1901 to the effect that

"we do not guarantee any state against punishment if it misconducts

the money was seized by Mexican authorities after it was in the hands of the bondholders' agent. This raised a different question, and of course justified interposition. 51 St. Pap. 548.

1

1 Mr. Frelinghuysen, Sec'y of State, to Mr. Wright, Jan. 17, 1884, Moore's Dig. VI, 713; Phillimore, op. cit., II, 13. See also settlement of claim of McMaster (Gt. Brit.) v. Colombia, Jan. 27, 1882, 73 St. Pap. 1349. McMaster had to prove that he purchased the 16 bonds in question before the issuance of a certain order for the suspension of payment on all bonds of this issue. Claimant governments will usually examine closely into the bona fides of the transaction by which their citizens became the holders of the bonds of foreign governments, to establish the absence of speculative ventures, and the existence of an actual loss. The face value of the bonds is not always a good test of the sum parted with or the legitimate loss sustained.

Mr. Frelinghuysen, Sec'y of State, to Mr. Wright, Jan. 17, 1884, Moore's Dig. VI, 713. He stated, however, that the occasions on which this had been done were not common enough to form a rule of action.

'President Monroe's Annual Message, Dec. 2, 1823, Amer. St. Pap., For. Rel. V, 246, 250, quoted in Moore's Dig. VI, 401, 402; Richardson's Messages, II, 209 et seq.

itself, provided that punishment does not take the form of the acquisition of territory by any non-American power," 1

but added an unequivocal approval of arbitration of claims growing out of alleged wrongs to individuals.

§ 122. The Porter Proposition at The Hague.

Both Mr. Root, as Secretary of State, and President Roosevelt, having in mind the difficulties of Venezuela in 1903 and those of the Dominican Republic in 1894 and 1904 in endeavoring to ward off foreign intervention, were anxious to have the question of the use of force in the collection of contractual claims settled by the agreement of states. Mr. Root therefore on June 18, 1906, instructed the delegates of the United States to the Third American Conference of American States at Rio Janeiro as follows:

"It has long been the established policy of the United States not to use its armed forces for the collection of ordinary contract debts due to its citizens by other governments."

After deprecating its injurious effect upon the welfare of weak and disordered states, whose development ought to be encouraged in the interests of civilization, he added:

"It is doubtless true that the non-payment of public debts may be accompanied by such circumstances of fraud and wrong-doing or violation of treaties as to justify the use of force. This government would be glad to see an international consideration of the subject which shall discriminate between such cases and the simple non-performance of a contract with a private person, and a resolution in favor of reliance upon peaceful means in cases of the latter class." 2

He recommended, however, that as most of the American states were still debtors and would, by such a resolution, resolve how their creditors should act, it would be more fitting that they should request the Hague Conference, where both creditors and debtors would be assembled, to consider the subject.

The Rio Conference made such a request, and the United States delegation at The Hague, on instructions from Mr. Root, as Secretary 1 Mr. Hay, Sec'y of State, to Señor Garcia Mérou, Feb. 17, 1903, For. Rel., 1903,

2 Senate Doc. 365, 59th Cong., 2nd sess., 41-42.

of State, brought forward a proposition to the effect that the use of force for the collection of contract debts is not permissible until after the justice and amount of the debt, as well as the time and manner of payment, shall have been determined by arbitration.1

Gen. Horace Porter took charge of this proposition, and made the principal address in its support. After several amendments to his original draft, the conference by a vote of 39 in favor and 5 abstentions (Belgium, Roumania, Sweden, Switzerland and Venezuela) adopted the following convention-a few states making special reservations:

"The Contracting Powers agree not to have recourse to armed force for the recovery of contract debts claimed from the government of one country by the government of another country as being due to its nationals.

"This undertaking is, however, not applicable when the debtor state refuses or neglects to reply to an offer of arbitration, or, after accepting the offer, prevents any compromis from being agreed on, or, after the arbitration, fails to submit to the award."

While not rejecting completely the possibility of forcibly collecting contract debts, the convention represents a considerable step in advance, inasmuch as it makes the use of force conditional upon (1) a refusal to arbitrate; (2) making a formulation of an agreement impossible after arbitration is accepted; (3) failure to carry out the award. These are more definite and more appropriate limitations than the vague terms "bad faith," "deliberate and voluntary insolvency," etc., which we may infer even the opponents of intervention and Dr. Drago himself would consider as justifiable causes of intervention.2

A few countries either declined to subscribe to the convention or

In the Russian program of the First Peace Conference of 1899 regarding international arbitration a clause had been included providing that arbitration shall be obligatory "in the case of differences or conflicts regarding pecuniary damages suffered by a state or its citizens in consequence of illegal or negligent action on the part of any state or the citizens of the latter." This proposition for the arbitration of pecuniary claims was for various reasons dropped.

2 A good account of the preli inary instructions and principal speeches and proposals in connection with this convention for the limitation of the employment of force, with appropriate quotations, may be found in J. B. Scott's Hague Peace Conferences, I, Chap. VIII, 386-422. See also article by G. W. Scott, supra, in 2 A. J. I. L. (1908), 78-94. The convention in full is printed in Scott's Hague Peace Conferences, II (Documents), 357-361.

in adhering registered important reservations. Switzerland and Venezuela declined to sign the convention (although the latter was very willing to accept the renunciation of force) on the ground that it ousted the national courts of jurisdiction. One can understand Switzerland's unwillingness to be bound to arbitrate a question in which its courts, internationally recognized as impartial, have jurisdiction.1 Venezuela's protest, which took the following form

"recourse to arbitration should be permitted only in the case of denial of justice after the judicial remedies of the debtor state had been exhausted"

is to be regarded as traditional. If its judicial organization is as independent as it ought to be, the justification for the protest is readily apparent. Seven other Latin-American republics, by way of reservation, joined in the objection of Venezuela.

The principal reservation was made by Dr. Drago himself, on the part of Argentine. After declaring that ordinary contracts should be arbitrable only in case of denial of justice after the exhaustion of local remedies, he added:

"Public loans with bond issues constituting the national debt cannot in any case give rise to military aggression nor to the occupation of the soil of American states."

In this reservation Argentine was joined by Colombia, Ecuador, Guatemala, Nicaragua, Paraguay, Peru and Uruguay.2

Another reservation by Peru, in which Uruguay joined, sought to protect the so-called Calvo clause from possible infringement. reservation reads:

The

"That the principles adopted in this proposition cannot be applied to claims or differences arising from contracts between the government of one country and foreign subjects, when it has been expressly stipu

In theory at least the strong and well-organized states have renounced an inherent right. Dr. Heinrich Pohl in the Zeitschrift für Politik (vol. 4, 134, 138) criticizes Germany for having ratified the Porter Proposition (Reichsgesetzblatt, 1910, 59-81), for he states that Germany may sometimes be a defendant state and will be bound by the agreement to arbitrate, thus ousting its courts of jurisdiction.

2 See table of reservations in J. B. Scott's Hague Peace Conferences, II, 532-534, and article by G. W. Scott, 2 A. J. I. L. 89. See also 3 Zeitschr. für Völkerr. u Bundesstaatsrecht, 72, 73.